Smith in Wikipedia, Internet Encyclopedia of Philosophy, Sanford Encyclopedia of Philosophy
Major Works:
The Theory of Moral Sentiments (1759)
An Inquiry into the Nature and Causes of the Wealth of Nations (1776)
Background to Smith's Economic Theory
What is political economy?
"Political economy" is the study of production and trade and their relations with law, custom and government; and with the distribution of national income and wealth. As a discipline, political economy originated in moral philosophy, in the 18th century, to explore the administration of states' wealth. The earliest works of political economy are usually attributed to the British scholars Adam Smith, Thomas Malthus, and David Ricardo, although they were preceded by the work of the French physiocrats, such as François Quesnay (1694–1774) and Anne-Robert-Jacques Turgot (1727–1781).
In the late 19th century, the term "economics" gradually began to replace the term "political economy" with the rise of mathematical modelling coinciding with the publication of an influential textbook Principles of Economics by Alfred Marshall in 1890.
What were Guilds?
Guilds arose in the Middle Ages. Guilds were associations of artisans (e.g. carpenters) or merchants (e.g. wool merchants) who oversee the practice of their craft/trade in a particular area. The earliest types of guilds formed as a confraternities of tradesmen. They were organized in a manner something between a professional association, a trade union, a cartel, and a secret society. They often depended on grants of letters patent from a monarch or other authority to enforce the flow of trade to their self-employed members, and to retain ownership of tools and the supply of materials. Guilds controlled the supply of labor and prohibited competition in the marketplace.
What was Mercantilism?
Mercantilism is a national economic policy that is designed to maximize the exports of a nation. Mercantilism was dominant in modernized parts of Europe from the 16th to the 18th centuries. It was particularly powerful in 18th century Great Britain which had the biggest and strongest trade empire of the century. England began the first large-scale and integrative approach to mercantilism during the Elizabethan Era (1558–1603).
A main goal of mercantilism is to maximize exports and minimize imports. Therefore mercantilism promotes government regulation of a nation's economy for the purpose of augmenting state power at the expense of rival national powers. Mercantilism includes a national economic policy aimed at accumulating monetary reserves (in gold or silver) through a positive balance of trade, especially of finished goods. These reserves were thought to be the basis of the wealth of a nation. High tariffs, especially on manufactured goods, were an almost universal feature of mercantilist policy.
Historically, such policies frequently led to war and also motivated colonial expansion.
Who were the Physiocrats?
Physiocracy (French: Physiocratie; from the Greek for "government of nature") is an economic theory developed by a group of 18th-century Enlightenment French economists who believed that the wealth of nations was derived solely from the value of "land agriculture" or "land development" and that agricultural products should be highly priced. Physiocracy was one of the first well-developed theories of economics.
The movement was particularly dominated by François Quesnay (1694–1774) and Anne-Robert-Jacques Turgot (1727–1781). It immediately preceded the first modern school, classical economics, which began with the publication of Adam Smith's The Wealth of Nations in 1776. Turgot is considered the important predecessor to Smith in liberal (laissez-faire) economics.
The most significant contribution of the physiocrats was their emphasis on productive work as the source of national wealth. This is in contrast to earlier schools, in particular mercantilism, which often focused on the ruler's wealth, accumulation of gold, or the balance of trade. Whereas the mercantilist school of economics said that value in the products of society was created at the point of sale, by the seller exchanging his products for more money than the products had "previously" been worth, the physiocratic school of economics was the first to see labor as the sole source of value. However, for the physiocrats, only agricultural labor created this value in the products of society. All "industrial" and non-agricultural labors were "unproductive appendages" to agricultural labor.
Bernard Mandeville (1670 - 1733) The Fable of the Bees, Private Vices, Public Benefits (poem: 1705, book: 1714)
- An article on The Fable of the Bees
Mandeville was born in Rotterdam but moved to England after finishing his medical degree in 1691. He was well respected as a doctor and a writer, but his 1714 book, The Fable of the Bees, which was a commentary on his 1705 poem The Grumbling Hive: or, Knaves Turn’d Honest was deemed scandalous. It not only held that humans were basically self-interested (ala Thomas Hobbes), but also that ethics / morality was antithetical to prosperous societies. For instance, crime creates jobs for locksmiths, policemen, and judges.
Adam Smith also held that self-interest was the basis of preposterous economy, but as a professor of morals, he incorporated moral thinking into laissez-faire economics. But even this was antithetical to the dominant Christian thinking of the time that that saw egoism as immoral.
There are only three proper roles for the sovereign:
1. to protect a society from invasion by outside forces
2. to enforce justice and protect citizens from one another
3. "the duty of erecting and maintaining certain publick works and certain publick institutions, which it can never be for the interest of any individual, or small number of individuals, to erect and maintain; because the profit could never repay the expence to any individual or small number of individuals, though it may frequently do much more than repay it to a great society."
Smith's work set the stage for the economics of the industrial revolution and influenced later 19th century utilitarians of classical economics like David Ricardo, James Mill, and his son John Stuart Mill.
The Five Books of The Wealth of Nations ...
I. Outlines the importance of the division of labor and of self-interest.
II. Discusses the role of stock and capital.
III. Provides an historical account of the rise of wealth from primitive times up until commercial society.
IV. Discusses the economic growth that derives from the interaction between urban and rural sectors
of a commercial society.
V. Presents the role of the sovereign in a market economy, emphasizing the nature and limits of
governmental powers and the means by which political institutions are to be paid for.
Smith asks his readers to reconsider the meaning of wealth itself. Is wealth the money and assets that one has at any given time, or is it these things combined with the potential to have more, to adjust to circumstances, and to cultivate the skills to increase such potential? Smith thinks it is the latter. Smith is also concerned specifically with the distinction between necessities and conveniences.
His overarching concern in The Wealth of Nations is the creation of "universal opulence which extends itself to the lowest ranks of the people." In other words, Smith believes that a commercial system betters the lives for the worst off in society; all individuals should have the necessities needed to live reasonably well. He is less concerned with "conveniences" and "luxuries;" he does not argue for an economically egalitarian system. Instead, he argues for a commercial system that increases both the general wealth and the particular wealth of the poorest members.
Smith based his theories on what he was as the nature of humans; that nature is logical because it operates on principles, and, therefore, certain outcomes can be predicted (Newtonian). Smith recognizes that human beings and their interactions are part of nature and not to be understood separately from it. As in The Theory of Moral Sentiments, social and political behavior follows a natural logic. Now Smith makes the same claim for economic acts. Human society is as natural as the people in it, and, as such, Smith rejects the notion of a social contract in both of his books. There was never a time that humanity lived outside of society, and political development is the product of evolution (not his term) rather than a radical shift in organization.
Video: The Real Adam Smith: Morality and Markets (56 min)
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